https www coursehero com u file 156172048 Case 26 Student Spreadsheetxlsx 1 How much would the Return on Equity in 2019 change based on the following a The sale of vacant land results in a $2 0 million decrease in total assets Net income wouldn't be impacted, and the Board wants to keep the debt ratio for 2019 as is b When debt is used in place of equity, the debt ratio rises to 48 percent Assets overall wouldn't be impacted Although interest expense would rise, improved cost controls would balance out the higher interest expense, keeping net income constant c When LEAN management is used, overall costs are reduced by $0 5 million Total earnings, assets, liabilities, and net assets would all remain unchanged d The Board is pressuring management to raise the return on equity to at least 10 , regardless of the method chosen What overall margin would be required, keeping everything else constant, to achieve the 10 ROE 2 What are your top three or four suggestions to the Board based on the scant facts supplied Statements of Operations (Millions) Revenues 2016 2017 2018 Net patient service revenue $ 28 796 $ 30 576 $ 34 582 Other revenue 1 237 1 853 1 834 Total revenues $ 30 033 $ 32 429 $ 36 416 Expenses Salaries and wages $ 12 245 $ 12 468 $ 13 994 Fringe benefits 1 830 2 408 2 568 Interest expense 1 181 1 598 1 776 Depreciation 2 350 2 658 2 778 Medical supplies and drugs 0 622 0 655 0 776 Professional liability 0 140 0 201 0 218 Other 9 036 10 339 11 848 Total expenses $ 27 404 $ 30 327 $ 33 958 Net income $ 2 629 $ 2 102 $ 2 458 Balance Sheets (Millions) Assets 2016 2017 2018 Cash and investments $ 4 673 $ 5 069 $ 2 795 Accounts receivable (net) 4 359 5 674 7 413 Inventories 0 432 0 523 0 601 Other current assets 0 308 0 703 0 923 Total current assets $ 9 772 $ 11 969 $ 11 732 Gross plant and equipment $ 47 786 $ 55 333 $ 59 552 Accumulated depreciation 11 820 14 338 17 009 Net plant and equipment $ 35 966 $ 40 995 $ 42 543 Total assets $ 45 738 $ 52 964 $ 54 275 Liabilities and Net Assets Accounts payable $ 0 928 $ 1 253 $ 1 760 Accruals 1 460 1 503 1 176 Current portion of long term debt 0 110 1 341 1 465 Total current liabilities $ 2 498 $ 4 097 $ 4 401 Long term debt $ 15 673 $ 19 222 $ 17 795 Net assets $ 27 567 $ 29 645 $ 32 079 Total liabilities and net assets $ 45 738 $ 52 964 $ 54 275 Statements of Cash Flows (Millions) Cash Flows from Operating Activities 2016 2017 Net income $ 2 102 $ 2 458 Depreciation 2 633 2 756 Change in accounts receivable (1 315) (1 739) Change in inventories (0 091) (0 078) Change in other current assets (0 395) (0 220) Change in accounts payable 0 325 0 507 Change in accruals 0 043 (0 327) Net cash flow from operations $ 3 302 $ 3 357 Cash Flows from Investing Activities Investment in plant and equipment $ (7 686) $ (4 328) Cash Flows from Financing Activities Change in long term debt $ 3 549 $ (1 427) Change in current portion of long term debt 1 231 0 124 Net cash flow from financing $ 4 780 $ (1 303) Net increase (decrease) in cash and investments $ 0 396 $ (2 274) Beginning cash and investments 4 673 5 069 Ending cash and investments $ 5 069 $ 2 795 Note The depreciation and fixed asset acquisitions data in the statements of cash flows are somewhat different than they would be if calculated directly from the other financial statements because of asset revaluations Operating Revenue and Expense Allocation (Millions of Dollars) 2016 2017 2018 Operating revenue Gross inpatient service $ 26 117 $ 29 148 $ 33 216 Gross outpatient service 6 535 9 130 11 912 Gross patient service revenue $ 32 652 $ 38 278 $ 45 128 Contractual allowances $ 1 729 $ 5 196 $ 7 516 Bad debt and charity care 2 127 2 506 3 030 Total revenue deductions $ 3 856 $ 7 702 $ 10 546 Net patient service revenue $ 28 796 $ 30 576 $ 34 582 Operating expenses Inpatient service $ 20 573 $ 22 229 $ 24 771 Outpatient service 6 831 8 098 9 187 Total operating expenses $ 27 404 $ 30 327 $ 33 958 Selected Operating Data 2016 2017 2018 Medicare discharges 2,721 2,860 2,741 Total discharges 8,784 8,318 8,576 Outpatient visits 32,285 32,878 36,796 Licensed beds 210 210 210 Staffed beds 193 197 178 Patient days 44,085 42,434 40,062 All payer Case Mix Index 1 2869 1 2993 1 3161 Full time equivalents 610 8 625 8 619 3 Selected Financial Ratios 2014 Industry Data (200 299 Beds) 2016 2017 2018 Quartile Median Quartile Profitability Ratios Total margin 8 75 6 48 6 75 5 58 3 48 0 53 Return on assets 5 75 3 97 4 53 5 80 3 10 0 40 Return on equity 9 54 7 09 7 66 15 66 6 01 0 62 Deductible ratio 0 12 0 20 0 23 0 34 0 26 0 18 Liquidity Ratios Current ratio 3 91 2 92 2 67 2 53 1 99 1 48 Days cash on hand 68 08 66 87 32 72 32 35 15 89 6 24 Debt Management Ratios Debt ratio 39 73 44 03 40 90 62 90 48 40 35 20 Debt to equity 56 85 64 84 55 47 127 00 64 70 26 90 Times interest earned 3 23 2 32 2 38 4 29 2 23 1 14 Cash flow coverage 5 22 3 98 3 95 5 32 3 22 1 76 Asset Management Ratios Fixed asset turnover 0 84 0 79 0 86 2 20 1 76 1 49 Total asset turnover 0 66 0 61 0 67 1 04 0 89 0 75 Current asset turnover 3 07 2 71 3 10 3 94 3 38 2 88 Days in patient accounts receivable 55 25 67 73 78 24 87 53 75 67 63 33 Average payment period (days) 36 39 54 05 51 52 71 24 56 52 45 84 Other Ratios Average age of plant (years) 5 03 5 39 6 12 8 86 7 39 6 14 Selected Operating Indicators 2014 Industry Data (200 299 Beds) 2016 2017 2018 Quartile Median Quartile Profit Indicators Profit per inpatient discharge $280 03 $126 72 $79 61 $89 04 ($21 30) ($120 08) Profit per outpatient visit ($33 07) ($24 49) ($1 60) $6 22 $0 66 ($7 01) Net Revenue Indicators Net revenue per discharge $2,622 $2,799 $2,968 $4,091 $3,411 $2,815 Net revenue per visit $179 $222 $248 $201 $139 $98 Medicare revenue percentage 30 98 34 38 31 96 43 47 36 60 31 25 Bad debt charity care percentage 6 51 6 55 6 71 7 89 4 76 2 97 Contractual allowance percentage 5 30 13 57 16 65 25 27 20 02 12 12 Outpatient revenue percentage 20 01 23 85 26 40 25 26 21 03 17 44 Volume Indicators Occupancy rate 62 58 59 01 61 66 67 12 58 10 47 84 Average daily census 120 78 116 26 109 76 173 23 144 73 114 39 Length of Stay Indicators Average length of stay (days) 5 02 5 10 4 67 6 80 6 07 5 41 Adjusted length of stay 3 90 3 93 3 55 6 48 5 36 4 52 Expense Indicators Expense per discharge $2,342 $2,672 $2,888 $3,937 $3,392 $2,972 Expense per adjusted discharge $1,820 $2,057 $2,195 $3,417 $2,924 $2,572 Expense per visit $212 $246 $250 $202 23 $141 97 $111 53 All payer Case Mix Index 1 2869 1 2993 1 3161 1 2795 1 1756 1 0259 Efficiency Indicators FTEs per occupied bed 4 04 4 10 4 15 4 59 4 15 3 77 Labor hours visit 7 88 9 44 9 24 8 66 5 84 4 68 Unit Cost Indicators Salary per FTE $20,047 $19,923 $22,596 $24,447 $22,517 $20,347 Fringe benefits percentage 14 94 19 31 18 35 19 58 17 04 15 18 Liability expense per discharge $15 94 $24 16 $25 42 $80 94 $42 05 $18 31

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Question: https://www.coursehero.com/u/file/156172048/Case-26-Student-Spreadsheetxlsx/ 1. How much would the Return on Equity in 2019 change based on the following? a. The sale of vacant land results in a

https://www.coursehero.com/u/file/156172048/Case-26-Student-Spreadsheetxlsx/

1. How much would the Return on Equity in 2019 change based on the following?

a. The sale of vacant land results in a $2.0 million decrease in total assets. Net income wouldn't be impacted, and the Board wants to keep the debt ratio for 2019 as is.

b. When debt is used in place of equity, the debt ratio rises to 48 percent. Assets overall wouldn't be impacted. Although interest expense would rise, improved cost controls would balance out the higher interest expense, keeping net income constant.

c. When LEAN management is used, overall costs are reduced by $0.5 million. Total earnings, assets, liabilities, and net assets would all remain unchanged.

d. The Board is pressuring management to raise the return on equity to at least 10%, regardless of the method chosen. What overall margin would be required, keeping everything else constant, to achieve the 10% ROE?

2.What are your top three or four suggestions to the Board based on the scant facts supplied?

Statements of Operations (Millions):

Revenues		2016	2017	2018
Net patient service revenue		$ 28.796	$ 30.576	$ 34.582
Other revenue		1.237	1.853	1.834
Total revenues		$ 30.033	$ 32.429	$ 36.416

Expenses
Salaries and wages		$ 12.245	$ 12.468	$ 13.994
Fringe benefits		1.830	2.408	2.568
Interest expense		1.181	1.598	1.776
Depreciation		2.350	2.658	2.778
Medical supplies and drugs		0.622	0.655	0.776
Professional liability		0.140	0.201	0.218
Other		9.036	10.339	11.848
Total expenses		$ 27.404	$ 30.327	$ 33.958

Net income		$ 2.629	$ 2.102	$ 2.458


Balance Sheets (Millions):

Assets		2016	2017	2018
Cash and investments		$ 4.673	$ 5.069	$ 2.795
Accounts receivable (net)		4.359	5.674	7.413
Inventories		0.432	0.523	0.601
Other current assets		0.308	0.703	0.923
Total current assets		$ 9.772	$ 11.969	$ 11.732
Gross plant and equipment		$ 47.786	$ 55.333	$ 59.552
Accumulated depreciation		11.820	14.338	17.009
Net plant and equipment		$ 35.966	$ 40.995	$ 42.543

Total assets		$ 45.738	$ 52.964	$ 54.275

Liabilities and Net Assets
Accounts payable		$ 0.928	$ 1.253	$ 1.760
Accruals		1.460	1.503	1.176
Current portion of long-term debt	0.110	1.341	1.465
Total current liabilities		$ 2.498	$ 4.097	$ 4.401
Long-term debt		$ 15.673	$ 19.222	$ 17.795
Net assets		$ 27.567	$ 29.645	$ 32.079

Total liabilities and net assets	$ 45.738	$ 52.964	$ 54.275


Statements of Cash Flows (Millions):

Cash Flows from Operating Activities		2016	2017
Net income			$ 2.102	$ 2.458
Depreciation			2.633	2.756
Change in accounts receivable		(1.315)	(1.739)
Change in inventories			(0.091)	(0.078)
Change in other current assets		(0.395)	(0.220)
Change in accounts payable			0.325	0.507
Change in accruals			0.043	(0.327)
Net cash flow from operations		$ 3.302	$ 3.357

Cash Flows from Investing Activities
Investment in plant and equipment		$ (7.686)	$ (4.328)

Cash Flows from Financing Activities
Change in long-term debt			$ 3.549	$ (1.427)
Change in current portion of long-term debt	1.231	0.124
Net cash flow from financing		$ 4.780	$ (1.303)

Net increase (decrease) in cash and investments	$ 0.396	$ (2.274)
Beginning cash and investments		4.673	5.069

Ending cash and investments			$ 5.069	$ 2.795

Note: The depreciation and fixed asset acquisitions data in the statements of
cash flows are somewhat different than they would be if calculated
directly from the other financial statements because of asset revaluations.


Operating Revenue and Expense Allocation (Millions of Dollars):

		2016	2017	2018
Operating revenue
Gross inpatient service		$ 26.117	$ 29.148	$ 33.216
Gross outpatient service		6.535	9.130	11.912
Gross patient service revenue	$ 32.652	$ 38.278	$ 45.128

Contractual allowances		$ 1.729	$ 5.196	$ 7.516
Bad debt and charity care		2.127	2.506	3.030
Total revenue deductions		$ 3.856	$ 7.702	$ 10.546

Net patient service revenue	$ 28.796	$ 30.576	$ 34.582

Operating expenses
Inpatient service		$ 20.573	$ 22.229	$ 24.771
Outpatient service		6.831	8.098	9.187
Total operating expenses		$ 27.404	$ 30.327	$ 33.958


Selected Operating Data:

		2016	2017	2018
Medicare discharges		2,721	2,860	2,741
Total discharges		8,784	8,318	8,576
Outpatient visits		32,285	32,878	36,796
Licensed beds		210	210	210
Staffed beds		193	197	178
Patient days		44,085	42,434	40,062
All-payer Case Mix Index		1.2869	1.2993	1.3161
Full-time equivalents		610.8	625.8	619.3


Selected Financial Ratios:

						2014 Industry Data (200-299 Beds)
		2016	2017	2018		+Quartile	Median	-Quartile
Profitability Ratios
Total margin		8.75%	6.48%	6.75%		5.58%	3.48%	0.53%
Return on assets		5.75%	3.97%	4.53%		5.80%	3.10%	0.40%
Return on equity		9.54%	7.09%	7.66%		15.66%	6.01%	0.62%
Deductible ratio		0.12	0.20	0.23		0.34	0.26	0.18

Liquidity Ratios
Current ratio		3.91	2.92	2.67		2.53	1.99	1.48
Days cash on hand		68.08	66.87	32.72		32.35	15.89	6.24

Debt Management Ratios
Debt ratio		39.73%	44.03%	40.90%		62.90%	48.40%	35.20%
Debt to equity		56.85%	64.84%	55.47%		127.00%	64.70%	26.90%
Times interest earned		3.23	2.32	2.38		4.29	2.23	1.14
Cash flow coverage		5.22	3.98	3.95		5.32	3.22	1.76

Asset Management Ratios
Fixed asset turnover		0.84	0.79	0.86		2.20	1.76	1.49
Total asset turnover		0.66	0.61	0.67		1.04	0.89	0.75
Current asset turnover		3.07	2.71	3.10		3.94	3.38	2.88
Days in patient accounts receivable	55.25	67.73	78.24		87.53	75.67	63.33
Average payment period (days)	36.39	54.05	51.52		71.24	56.52	45.84

Other Ratios
Average age of plant (years)		5.03	5.39	6.12		8.86	7.39	6.14


Selected Operating Indicators:

						2014 Industry Data (200-299 Beds)
		2016	2017	2018		+Quartile	Median	-Quartile
Profit Indicators
Profit per inpatient discharge		$280.03	$126.72	$79.61		$89.04	($21.30)	($120.08)
Profit per outpatient visit		($33.07)	($24.49)	($1.60)		$6.22	$0.66	($7.01)

Net Revenue Indicators
Net revenue per discharge		$2,622	$2,799	$2,968		$4,091	$3,411	$2,815
Net revenue per visit		$179	$222	$248		$201	$139	$98
Medicare revenue percentage	30.98%	34.38%	31.96%		43.47%	36.60%	31.25%
Bad debt / charity care percentage	6.51%	6.55%	6.71%		7.89%	4.76%	2.97%
Contractual allowance percentage	5.30%	13.57%	16.65%		25.27%	20.02%	12.12%
Outpatient revenue percentage	20.01%	23.85%	26.40%		25.26%	21.03%	17.44%

Volume Indicators
Occupancy rate		62.58%	59.01%	61.66%		67.12%	58.10%	47.84%
Average daily census		120.78	116.26	109.76		173.23	144.73	114.39

Length of Stay Indicators
Average length of stay (days)	5.02	5.10	4.67		6.80	6.07	5.41
Adjusted length of stay		3.90	3.93	3.55		6.48	5.36	4.52

Expense Indicators
Expense per discharge		$2,342	$2,672	$2,888		$3,937	$3,392	$2,972
Expense per adjusted discharge	$1,820	$2,057	$2,195		$3,417	$2,924	$2,572
Expense per visit		$212	$246	$250		$202.23	$141.97	$111.53
All-payer Case Mix Index		1.2869	1.2993	1.3161		1.2795	1.1756	1.0259

Efficiency Indicators
FTEs per occupied bed		4.04	4.10	4.15		4.59	4.15	3.77
Labor hours/visit		7.88	9.44	9.24		8.66	5.84	4.68

Unit Cost Indicators
Salary per FTE		$20,047	$19,923	$22,596		$24,447	$22,517	$20,347
Fringe benefits percentage		14.94%	19.31%	18.35%		19.58%	17.04%	15.18%
Liability expense per discharge	$15.94	$24.16	$25.42		$80.94	$42.05	$18.31

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